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Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest. Disclaimer: views set…

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The Tiny Island Nation That Can’t Get It’s Natural Gas Boom Going

The Eastern Mediterranean was one of Europe’s most closely followed drilling regions – for many years leading European politicians have espoused the idea of connecting the offshore bounties of the offshore Levant to continental hubs of demand. Yet after many promising signs in the early 2010s and some moderately ones later in the decade, the first months of 2020 have so far brought only bad news for drillers. It all started with drilling activities winding down because of coronavirus fears, then Lebanon’s first-ever offshore well turned out to be commercially unviable, having found minor pockets of gas, and recently Cyprus’ oil and gas prospects were compromised by ExxonMobil delayed all offshore drilling in the island’s offshore zone into 2021. 

ExxonMobil, along with its partner Qatar Petroleum, was due to drill an appraisal well this summer at its Glaucos discovery, assumed to contain up to 8 TCf of gas. Citing unfavorable pricing conditions in general and operational difficulties connected to the spread of SARS-COV-2, ExxonMobil claimed it would restart drilling in September 2021, whilst the second appraisal well to Glaucos was postponed to early 2022. Following ExxonMobil’s announcement, the Italo-French ENI-TOTAL tandem has also voiced its intent to delay all drilling operations by at least one year, despite having a rather ambitious objective to drill up to 6 wells in Cypriot waters in the upcoming months. ENI operates a total of 5 blocks in Cyprus’ offshore zone (Blocks 2,3,6,8 and 9) whilst TOTAL is in operator position on 2 blocks (Blocks 7 and 11). 

Concurrently to coronavirus unfolding over the European continent, Turkey has intensified its drilling routine in territorial waters that are internationally recognized as those of Cyprus. As recently as this May, the Yavuz drilling ship which has been traditionally used to drill in contested waters drilled the Seljuk-1 well in the northeastern part of Cyprus’ Block 06, jointly held by the ENI and TOTAL. The unsolicited Turkish drilling takes place to the north of the 2018 Calypso gas discovery, in water depths of some 2500 meters. Turkey claims that without an all-encompassing political settlement with the Republic of Cyprus on the fate of the occupied northern part it would object to any hydrocarbon development in Cypriot waters, potentially even in the remotest of blocks.  Related: The Energy Deal Putting Iraq's $55 Billion Oil Project At Risk

The thinly veiled threat of Turkey jeopardizing the development and marketing of any Cyprus offshore field is tangibly weighing upon East Med drillers. The European Union has tried to strike a more assertive tone vis-à-vis Turkey, Cyprus is an EU member after all, however all previous attempts to sanction senior officials linked to the illegal drilling have been largely brushed off. After the sanctioning of 2 senior TPAO officials by Brussels, Turkey reacted by saying that it would intensify its drilling in the contested waters if further sanctions are slapped onto them. A loose union of Mediterranean nations (and the UAE) have signed a joint declaration on the impermissibility of Turkey’s drilling in Cyprus’ EEZ, only to have the declaration derided by Ankara as “hypocritical” and “coming from countries that seek regional chaos and instability”. 

Of the 6 wildcat wells planned for 2020 by ENI and TOTAL, two were intended to take place in Block 06, i.e. the one that Turkey has moved to drill in (one was to appraise the Calypso discovery, the other was to assess the reserve potential of the heretofore undrilled Cronos prospect). Interestingly, ENI and TOTAL also wanted to spud one wildcat on the Soupia prospect in Block 03 – a bit more than 2 years ago the Italian major was compelled to delay its drilling as Turkish warships started to harass its drillship. Hence, the delay of Cyprus drilling is playing into the hands of Ankara as its own drilling program and seismic surveying seems to be continuing irrespective of global prices – at the same time Cyprus’ offshore sees no action whatsoever and wants 2021 to come as soon as possible. 

All these delays are rendering the task of the Cypriot government even more difficult – despite having had several worthwhile discoveries (Aphrodite, Calypso, Onesiphoros, Glaucus), none of them has gotten close to FID status. As difficult as it is to pinpoint one primary reason why Cyprus would lag behind Egypt or Israel, the island nation has essentially zero natural gas demand and almost all its offshore production would need to be exported. Such an export dependence creating a double whammy for Cyprus – absent any infrastructure it has to rely on someone else’s liquefaction assets (most probably Egypt) whilst simultaneously relying on LNG prices being high enough to justify high offshore production costs. Involving other nations in Cyprus’ gas extraction projects might not be bad strategy though, as it would most probably temper Turkish drilling enthusiasm, however would render Cypriot LNG inexorably expensive – the last thing Larnaca needs in a $1.5-2/MMBtu LNG environment. 

By Viktor Katona for Oilprice.com


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  • Mamdouh Salameh on June 11 2020 said:
    Cyprus should be pragmatic and put political differences with Turkey aside and reach some sort of an accommodation with it under which the Turkish Cypriots will receive a fair share of any gas discoveries in the Island’s exclusive economic zone (EEZ). In return, Turkey would cease drilling in Cyprus’s EEZ and withdraw its drilling ships.

    Moreover, a sharing of the gas riches might facilitate some sort of a federal unification of the Island. The alternative is that the gas will remain under water with both the Greek Cypriots and the Turkish Cypriots deprived of badly needed financial resources.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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